ANALYSIS - Big win gives Brazil's Rousseff solid mandate

SAO PAULO | By Stuart Grudgings

Brazil's presidential-elect Dilma Rousseff greets supporters before speaking in Brasilia October 31, 2010. Former guerrilla leader Rousseff won Brazil's presidential election in resounding fashion after promising to stick to policies that have lifted millions from poverty...

Reuters/Bruno Domingos

SAO PAULO The convincing win by ruling Workers' Party candidate Dilma Rousseff in Brazil's presidential election on Sunday gives her a solid mandate to push a pragmatic, left-leaning agenda and lead a potentially awkward coalition government.

Rousseff, who will be the first woman to lead Brazil, successfully rode the huge popularity of outgoing President Luiz Inacio Lula da Silva and a vibrant economy to the country's top job and will be sworn in on Jan. 1.

A victory in the Oct. 3 first round would have provided a stronger mandate for Rousseff, a career technocrat who had never run for election and who some doubt has the charisma to manage an unwieldy coalition. But her convincing win in the runoff with more than 55 percent of the vote gives her a firm platform.

BIG BUT UNWIELDY COALITION

* Financial markets would probably have preferred a victory for centrist opposition candidate Jose Serra but investors have long expected Rousseff to win and are likely to react calmly when Brazil's stock and currency exchanges open on Monday.

* Rousseff can count on strengthened majorities for the ruling coalition in both houses of Congress to help ease the task of pushing her legislative agenda. But it remains to be seen how well she can manage competing demands from within the fragile coalition, including from her own ruling Workers' Party. Undisciplined coalition members frustrated some initiatives by Lula.

* Rousseff, 62, will broadly continue Lula's left-leaning policies with an emphasis on raising government efficiency, expanding the role of the state in some sectors such as mining, and upgrading the country's decrepit infrastructure. A bill aimed at reforming Brazil's Byzantine tax system is likely to be her first major legislative effort next year.

* She has, however, ruled out many of the major structural overhauls -- such as pension and social security reform -- that analysts say Brazil's economy needs if it is to maintain its recent lofty growth rates over the longer term.

TO SPEND OR NOT TO SPEND?

* Rousseff has said Brazil doesn't need the kind of drastic fiscal tightening that Lula imposed at the start of his first term in 2003. But investors will be eagerly seeking clues in the coming weeks on Rousseff's approach to fiscal policy, which many economists say has been too loose in an election year and needs to be tightened as inflation creeps up and the national currency has surged to two-year highs.

* With little pressure from markets to rein in spending, Rousseff may see little need to make politically tough choices such as breaking the link between pension spending and the national minimum wage that is a big source of spending growth.

* Her choice of cabinet ministers will help answer such questions. Rousseff's top advisers favor curbing growth in spending and investors are likely to be reassured by a familiar line-up that retains many current cabinet members and brings in figures respected by markets such as Luciano Coutinho, the head of national development bank BNDES. But who gets key posts such as finance minister, central bank head, and chief of staff will be crucial clues to Rousseff's economic stance.

* A high-profile role for former finance minister and Wall Street favorite Antonio Palocci, such as chief of staff, would indicate that Rousseff intends to keep a tighter rein on fiscal policy and resist demands from the left wing of the Workers' Party to keep the spending taps open.

* The appointment of cabinet ministers, which Rousseff will begin to hash out in November with other coalition parties such as the large, centrist PMDB, will also provide an early test of her leadership and management skills.

A LAST HAND FROM LULA

* Rousseff inherits a currency headache that threatens to undermine the competitiveness of the Brazilian economy. Despite taking measures to limit inflows of foreign capital, the Lula government has struggled to brake the real's rise.

* Her government is likely to continue to battle the real's rise with further measures to restrict capital inflows.

* With fiscal policy seeming unlikely to be tightened, however, the central bank may come under growing pressure to play its part in weakening the currency by lowering interest rates that are among the world's highest.

* Rousseff can rely on a last helping hand from Lula in the remaining two months of his eight-year rule. He is likely to play a prominent role in negotiations over her new government and to clear the way for her administration by tackling several difficult decisions.

* Those may include the granting of refugee status or extradition for Italian former guerrilla Cesare Battisti, and the choice of either France, the United States or Sweden to provide Brazil with fighter jets worth billions of dollars.

(Editing by Kieran Murray)

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